Three weeks of upbeat U.S. data have made investors more confident about the economy and less eager to hold gold as insurance against another slowdown. The resulting steep rise in benchmark 10-year U.S. Treasury yields has weighed on gold.

Central banks have also reportedly been active buyers of gold in recent weeks, having bought as much as 4 metric tons of metal, according to an industry source and theFinancial Times on Friday.

They were net buyers of gold last year for a second straight year with a 439.7 tonnes purchase in 2011. In the two decades prior to 2010, central banks as a group had consistently been net sellers of gold. Analysts said that talk of official-sector gold buying should bolster investor confidence as central banks tend to be very long-term owners of the precious metal.

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Warren, I am on Anguilla, next island East of you. I am making gold coins (see http://gold.ai) from scrap gold (cash for gold) here. I can give you a good deal on some gold coins if you are interested.

Gold seems to be a tangible investment that does well when the central bank holds interest rates below the inflation rate. Bernanke has told us he will hold rates near 0% till the end of 2014. Then they tend to raise rates is little steps, so it could be years more before they get the interest rate above the inflation rate. So I think gold will be good for many years to come.

The thing that having a delay between printing money and inflation proves is that the standard MMT idea of “as long as the inflation rate is low we can make more money” is not correct. If there is a 4 year delay and you are just looking at the current inflation rate then things will get messed up.

I don’t really like counting bonds as money but that graph really makes it look like gold views bonds as money. So now I like the idea that bonds slow the velocity of money. The problem I am trying to solve is that everywhere I can find if they monetize a large portion of the debt then they get inflation. So the MMT idea that “bonds are money so making new money to exchange for bonds does not matter” does not fit with history. But if you add in that bonds slow the velocity of money then switching new money for bonds can increase the velocity of money and get the price inflation that we see with monetization.

If I understood the “pure inflation” paper they just count as pure inflation times when all prices go up together. This is of course a smaller number. Does not seem useful to me.

You have to understand that there are only two currencies that are not being printed like crazy. Supply and demand means that these two currencies will increase in value relative to all the paper currencies that are being printed like crazy. Gold and Silver have been money for 5,000 years. The average paper currency last 27 years.

“it is clear to anyone paying attention that the monetary system is irretrievably broken and will fail.”

That’s hyperbole, not sober reasoning. And the DollarDaze.org paragraph that follows it tells you pretty much all you need to know. I’m administering a basic statistics exam at the moment, and my students would fail if they drew the same inferences from the evidence outlined. And yes, policy actions often take effect with lags (and plenty of uncertainty), but what does that prove?

I do think the gold:UST debt graph on your site is worth discussion. The natural reaction is to think that debt=>inflation, but (referring back to my stat students) assuming away lurking variables can be hazardous to your credibility. Consider that other data, such as the rate of change in median incomes in countries such as China and India, have also been closely correlated with the change in the nominal price of gold. Net USG deficits (and certain unconventional Fed operations, but not QE in general) add to nominal USD incomes, so countries with fixed, pegged, or otherwise managed exchange rates will see similar effects. And if those same countries have plenty of upside for nominal incomes, relatively poor social safety nets, and strong cultural traditions of owning precious metals…what’s likely to happen to PM prices? Meanwhile, besides similar global income effects (primarily higher volatility) in many tradeable goods, overall price levels seem pretty tame (my personal experience).

On a side note, google Reis+Watson+pure+inflation. Conventional price indices might overstate actual inflation by some 80%…!

So the central banks have been net sellers prior to the run-up in gold prices over the last few years and now they have become net buyers. Sell low and buy high! Smart?!?

So, Warren, if the central banks are exchanging their currency for gold, what is the effect on NFA’s, if any? It seems the central banks are putting newly created money in the economy and taking gold in exchange.

I’ve only been studying you and Wray and Mitchell for about a year, so I’m not fully up on all the ramifications and would appreciate your help.